Stock market simplified, explained for starters

The stock market plays an essential role in the global economy, creating a financial mecca of investing and making money from the companies that run the world. For most people, this is basically the entire extent of their knowledge about the stock market.

Sure, people know what a stock is and that it is constantly fluctuating based on the current economy, but how would you start investing if you wanted to get involved with the affair yourself?

In pursuit of financial discovery, I’ve researched the basic facts that will help any market dummy privy to the basics that make up the system that builds just about everything.

A stock is a chunk of a company. It is basically the funding they use to make their product or conduct some service. The more money this company makes, the more valuable that chunk of the company becomes.

In essence, when you buy a stock, share or equity, you are buying into the company as one of the many owners. You have a say in how the company is run and operated by voting on who is on the board of directors for that company.

The board of directors oversee the company and make sure the business is making a profit for both themselves as well as the other shareholders from their stock. If not, they may choose to change the management or make radical alterations to the business.

In order to maximize the money that can be made from this trading process, stocks are exchanged and swapped, based on whether that company has potential to make money or is at a low selling point.

People make money because, for every share you acquire, someone else has sold that share at (usually) a profit. The place where these buyers and sellers come together to settle on a price is called an exchange.

There are several types of exchanges. There are those that are actual places you may go to as well as places that are built from a network of computers and web interactions. You have probably seen video clips and pictures of the New York Stock Exchange, where traders stand a mass of outstretched arms, fistfuls of paper and a thick layer of shouts and yells.

Despite appearances, the NYSE is the worlds most prestigious stock exchange. Orders come in through brokerage firms which then send a floor broker to a specific area where a specialist matches buyers and sellers, then auctions to stock off. Once a trade is made they are sent back to the brokerage firms. From there, the company will notify the specific investor.

Other virtual stock markets, like NASDAQ, are called over the counter markets in which trading is done through telecommunications and networks of dealers.

Virtual stock markets have become widely popular particularly with the technology boom, for they can bring the stock market to any computer.

You can lose tremendous money in the stock market if money is not invested wisely, yet at the same time a few good decisions can land you an immense amount of money.

This element of risk and chance is similar to trying to beat a game of poker. There are certainly methods and strategies to better your chances, but in the end it is very unpredictable.

Before becoming involved with the stock market and investing, be sure to do your research on the actions you plan to take. There are several simulation websites, such as Investopedia and Wall Street Survivor, that create a life-like investing scenario to help familiarize users with the industry as well as the do’s and don’ts.

Simulations like these are probably the best way to familiarize yourself with the world of stock markets, particularly since virtual practice does not require you to risk real funds, yet still gives you the experience you need to make an informed decision.

There is an inconceivable amount of literature, journals, instructions and other ways to help with the worlds economy. Be sure to check them all out thoroughly before putting down cash on a whim. It’s an amazingly fast industry that can drain your wallet overnight, after all; money never sleeps.



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